I first bought FTSE 250 money manager aberdeen group (LSE: ABDN) after its demotion from the FTSE 100 in September 2023.
It seemed to me that the automatic wave of selling that this triggered was unjustified by business fundamentals. These sales came from FTSE 100 tracker funds no longer able to hold the stock. Funds not mandated to invest in anything other than top credit-rated shares had to do the same.
My purchase at that time turned out to be a very good move. The share price has jumped 24%, and the firm has paid me £890 in dividends on the 3,048 shares I bought at that point.
With H1 2025 results out on 30 July, I wonder whether I should buy more.
Recent results
Shortly after its 2023 demotion, aberdeen embarked on a restructuring plan. This aims to cut costs by around £150m and improve product offerings for clients.
It precipitated a dramatic turnaround in 2024, with a £6m IFRS loss in 2023 turned into profit of £251m. Its April Q1 trading update saw 2026 targets of a £300m+ operating profit and around £300m of net capital generation.
In the July H1 numbers, IFRS profit soared 47% year on year to £252m. Net capital generation jumped 7% to £111m, and diluted earnings per share leapt 48% to 13.5p.
It is earnings that ultimately power any firm’s share price and dividends higher over time.
Meanwhile, assets under management increased to £517.6bn, beating analysts’ forecasts of £511.5bn.
aberdeen flagged that price cuts at its Adviser arm designed to compete with lower-fee rivals would squeeze its margins. This remains an ongoing risk.
That said, the firm reiterated its 2026 targets of adjusted operating profit above £300m, and net capital generation of around £300m.
Potential share price gains
I have used the same method of identifying the mismatch between aberdeen’s share price and fair value as I did in 2023.
To clarify — a stock’s price and value are separate things. The former is whatever the market will pay for a stock, while the latter reflects true value based on company fundamentals.
The method in question is the discounted cash flow model. This pinpoints the price at which any firm’s shares should trade, derived from cash flow forecasts for the underlying business.
In this case, the DCF shows its shares are 44% undervalued at their current £2.04 price.
Therefore, their fair value is £3.64.
Dividend gains potential
aberdeen has paid the same 14.6p annual dividend for the past five years. Consensus analysts’ forecasts are that it will do so again this year, next year, and in 2027, at minimum.
So, an additional £10,000 holding for me would generate £10,500 in dividends after 10 years. This is based on the current 7.2% dividend yield and on ‘dividend compounding’ being used. This is a standard investment practice in which the dividends paid by a stock are reinvested straight back into it.
On the same twin basis (which is not guaranteed), my dividends would rise to £76,154 after 30 years.
At that point, the total value of my initial £10,000 holding would be £86,154. And this would pay an annual dividend income to me of £6,203.
Given this high dividend income and the extremely undervalued share price, I will buy more aberdeen shares very soon.
